Alphabet soup of financial advice


The Consumer Financial Protection Bureau (CFPB) has honed in on an important question: What do the various “senior designation” titles that financial advisers use to market their services really mean? To answer, the CFPB recently delivered a report to Congress and the Securities and Exchange Commission, entitled “Senior Designations for Financial Advisers: Reducing Consumer Confusion and Risks”. There are more than 50 different senior designations used in the marketplace and while some do convey special training and experience in providing financial advice to seniors, others are a way to target older consumers and sell them “inappropriate and sometimes fraudulent financial products.” In the topsy-turvy world of advice, a salesman can call himself an “Accredited Retirement Advisor (ARA)” even though the CFPB reported that this designation is not accredited at all.

How can consumers sift though the designations? The CFPB admits that seniors have insufficient information to determine the legitimacy and value of different senior designations. To help consumers, the report recommends the creation of a centralized tool through which senior investors can verify a financial adviser’s designations; the establishment of a mechanism to capture complaints and enforcement actions against senior designation holders; and the requirement that senior advisers to disclose their qualifications and the meaning of the senior-specific certification.

Unfortunately, the CFPB did not weigh in on the elephant in the room: the fiduciary standard, a set of core principles that advisers can adhere to, most importantly a commitment to put the interests of their clients first. Consumers can eliminate many of the hucksters by only doing business with professionals who commit to the standard.

Because I receive so many questions about financial professional designations, I am once again repeating my favorites:

CFP® certification: The Certified Financial Planner Board of Standards (CFP Board) requires candidates to meet what it calls “the four Es”: Education (Education (through one of several approved methods, must demonstrate the ability to create, deliver and monitor a comprehensive financial plan, covering investment, insurance, estate, retirement, education and ethics), Examination (a 10-hour exam given over a day and a half; most recent exam pass rate was 62.6 percent), Experience (three years of full-time, relevant personal financial planning experience required) and Ethics (disclosure of any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry). CFPs must adhere to the fiduciary standard.

CPA Personal Financial Specialist (PFS): The American Institute of CPAs® offers a separate financial planning designation. In addition to already being a licensed CPA, a CPA/PFS candidate must earn a minimum of 75 hours of personal financial planning education and have two years of full-time business or teaching experience (or 3,000 hours equivalent) in personal financial planning, all within the five year period preceding the date of the PFS application. They must also pass an approved Personal Financial Planner exam.

Membership in the National Association of Personal Financial Advisors (NAPFA): Becoming a member of NAPFA maintains a high bar for entry: Professionals must be RIAs and must also have either the CFP or CPA-PFS designation. Additionally, NAPFA advisers are fee-only, which means that they do not accept commissions or any additional fees from outside sources for the recommendations they make. Fee-only advisers can charge based on an hourly or flat rate, or based on a percentage of your portfolio value, often called “Assets Under Management” (AUM). Either method is fine with NAPFA; however, if the adviser collects a commission from an insurance company or a fee from a mutual fund company as part of the financial plan, then that adviser is precluded from membership.

In addition to being fee-only, NAPFA advisers must be fiduciaries and must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements. The requirements make NAPFA members among the tiniest percentage of registered investment advisers, with only 2,400 total current members.

It’s certainly possible to get good advice from an adviser without these designations, but they do help protect investors from some of the most egregious salespeople out there. No matter what, if you feel pressure from any financial professional, run the other way!

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